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What “Location” Means in Commercial Real Estate

People often say there are three things that determine the value of a property: location, location and location. Location is also an important factor in commercial real estate investment. For retail properties, location is the key as a lousy business will be successful it is at a good location. When a commercial property is at a good location, it will attract tenants to the property and retain them there. It will also attract the customers of your tenants to the property. As a result, you as the owner of the property can demand the higher rent & price for the property. So how do you as an investor determine if the property you would like to invest is at a good location? Look at the property and see if the property has these features:

1- Near major roads and freeways: This provides easy access to the property so the customers of the tenants can quickly and conveniently drive to the property.

2- Near busy street with high traffic volume: Commercial listings often mention the traffic volume in term of Cars Per Day (CPD). More traffic means more exposure of your tenants businesses to more potential customers. This is free advertising to your tenants. The traffic could also be foot traffic. For example retail stores at Pier 39 in San Francisco benefit from the high volume foot traffic from the tourists.

3- Near anchored tenants: Big retail stores like Wal-Mart, Albertsons, Home Depot instantly bring lots of customers to their stores. So if your commercial property is near an anchored tenant, it will benefit from the high volume traffic.

4- At an intersection: This will give the property more visibility as it has more frontage feet. If the property is located at a signalized corner then it’s even better. As cars stop at the traffic light, people in the cars will notice the stores in your property. The traffic light is also an indication the intersection has more traffic.

5- Near local amenities: Stadium, college, big shopping mall and hospital will bring more traffic to the shopping center. Doctors always like the medical building near the local hospital as it is convenient for them and their patients.

6- Easy to make left turn: The property should have ease of ingress and egress. If it’s hard to make left turns, shoppers will less likely come to the shopping centers. And thus it makes the property less desirable to the tenants.

7- Easy to find a parking space: People don’t like to go to a place where they cannot find parking spaces. Commercial property must have at least 1 parking space per 1000 square foot of leasable space. It’s more desirable to have 4-6 parking spaces per 1000 SF. The width of parking space is also important. Who wants a ding on the door after a shopping trip?

8- Signage: Signage is an important part of a commercial property. Customers often look for the name of the business rather than the street address. A large and tall monument sign in front of the property with the names of the businesses in the property is always desirable.

9- Able to attract and retain tenants: Your tenants will look for a building and neighborhood that are appealing to them and their customers to determine if they should sign or renew the leases. So quality of construction, property condition, landscaping, the appearance of the building and surrounding area are all important factors to keep the property 100% leased.

10- In a stable or growing area: You want to invest in an area where population has increased. Review the demographic data in the property brochure to see

  • How many percents the population has increased in the last 5-15 years.
  • How many new homes have been built in the last few years.
  • What the median income in the area is within 1-5 miles radius from the property

All these things will give you a picture if the town is growing.

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